It seems that everyone wants to invest in tech these days. While the trade news from China has stoked fears about tech’s international exposure, the tech-heavy NASDAQ is still up 20% year-to-date. Tech is the go-to sector, getting headlines and analyst attention, and sometimes generating tremendous returns that justify the buzz.
But not everyone has the budget to put down the four-figure share price for Alphabet or Amazon. Here we look at three tech stocks for value-conscious investors. These small-cap stocks present a low-cost option for entering the tech sector, and high upsides to make it worthwhile.
Optoelectronics, using lasers, optical semiconductors, and photonic circuits to transmit and receive data streams in the high-volume 200+ gigabyte per second range, are the current leading edge in data transmission, and NeoPhotonics is a leader in the field. The company reported earnings last week, and beat the estimates by 70%. Analysts had expected the company to lose 10 cents per share, but the loss came in at 3 cents even though the quarterly revenues of $81.69 million just missed the forecast.
NPTN was hit hard by the US-China trade tensions, especially as it is a major supplier for Chinese smartphone maker Huawei. Huawei was sanctioned by the US Administration, both as retaliation for intellectual property theft and as a protectionist measure for US network device makers. At the same time, there are positive reasons why this company is on the analysts’ radar.
Michael Genovese (a 4-star analyst according to TipRanks) of MKM Partners noted the Huawei exposure, adding, “The company has determined that most of the products it ships to Huawei are not subject to the Entity List restrictions, with good demand being seen for its 100G/200G products. We see 28% sequential increase in sales to the company's next four largest customers after Huawei, and demand trends are strong across Telecom and DCI applications.” Genovese raised his price target on NPTN to $7, suggesting a 14% upside to the stock.
He wasn’t the only analyst to take an upbeat message from NeoPhotonic’s quarterly report. Jun Zhang (a 4-star analyst), from Rosenblatt Securities, also rates the stock a buy, with a high $10 price target. Zhang wrote: “NeoPhotonics saw strong demand in the DCI and metro markets from Western customers... In addition, 400G related products ramped quickly, while 25G EML lasers are seeing a strong ramp and now account for 10% of revenue. We expect NeoPhotonics to continue to benefit from the initial deployment of 400G/600G networks.” Zhang’s price target implies an impressive 63% upside potential for NPTN.
NeoPhotonics shares jumped 46% after the Q2 report, and now stand at $6.10. The average price target, $7.71, indicates a potential upside of 26%. The stock has a Strong Buy rating from the analyst consensus, with 6 buys and 1 hold given in the past three months.
nLight, Inc. (LASR)
Also an industrial and optoelectronic laser company, nLight’s business has also suffered from China exposure. But where NeoPhotonics reported a quarterly loss, nLight reported a gain of 5 cents per share. That still represented a 16% miss, but the quarterly revenues of $48.05 million were in line with expectations.
While nLight’s stock has dropped sharply in the past year, the company remains profitable and analysts see the headwinds easing in the longer-term. DA Davidson’s Thomas Diffely (a 5-star analyst according to TipRanks) pointed out the pressures, including industry concerns over US-China trade issues, increased pricing pressure from China’s domestic competitors, and a slowing industrial laser market. On the positive side, he says, “[LASR’s] Aerospace and Defense segment remains a bright spot with its sixth consecutive quarter of double-digit growth.” That’s enough for him to maintain his buy rating on the stock, with a $20 price target and a 37% upside.
Agreeing with Difflely on the bullish prospects for LASR are Needham’s James Ricchiuti (a 5-star analyst) and Stifel’s Patrick Ho (a 5-star analyst). They set price targets of $19 and $24, respectively.
LASR shares are the highest priced of the stocks were looking at here, currently trading at $14.60. The stock has an average price target of $19.33 and a potential upside of 32%. The Moderate Buy analyst consensus rating comes from 4 buys and 3 holds given over the past three months.
ViewRay, Inc. (VRAY)
ViewRay is a pioneer in medical imagery, developing MRI technology to provide real-time imaging to improve the accuracy and delivery of radiation treatments, allowing greater benefits to the patient from lower radiation doses. And like many high-tech companies at the cutting edge of their fields, ViewRay has consistently reported quarterly losses. At the same time, high revenues offer a compelling bull case for VRAY.
Losses aren’t necessarily cause for concern, as they are usually baked into the pricing of tech startups. ViewRay took a 32 cent per share hit in Q2, but on a positive note, revenue was up. The quarterly revenue of $30.17 million beat the estimate by 12.57% and was nearly double the year-ago quarter’s $16.44 million.
That strong revenue beat carried the day, as far as Wall Street’s analysts were concerned. Buy pushing down the stock price – VRAY dropped from $9 to $3 after the quarterly release – the earnings report has opened up a buying opportunity for this stock. Jefferies analyst Anthony Petrone (a 4-star analyst) lists everything that went wrong for ViewRay in the quarter before coming to his conclusion: “We remain positive on the long-term prospects for MRIdian. Keep a Buy rating on ViewRay.” His price target, $7, underlines his optimism with an upside of 125%.
Writing from Northland Securities, Suraj Kalia (a 4-star analyst) noted, “Unit orders beginning Q1-18 have been 4, 6, 6, 8, 7, and 3, respectively. Our FY19 unit order estimate goes to 24 units (from 31). FY20 unit orders @ 54 remains unchanged.” Kalia’s $5 price target suggests a 61% upside.
The most optimistic take on VRAY comes from Andrew D’silva (a 3-star analyst) of B. Riley FBR. D’silva points out that, despite growing competition, ViewRay has more product installations during the quarter than expected: “The top-line beat was primarily due to VRAY installing 5 MRIdian Linacs versus our expectation for 4.” He gives the stock a $9 price target, suggesting an impressive 190% upside.
Overall, VRAY has a Strong Buy from the analyst consensus, based on a unanimous 7 buy ratings. The stock is priced at $3.10, and the average price target of $7.86 gives it a 153% upside.
Visit TipRanks’ Top Analysts page to find out which stocks are stirring up notice on the Street.